Merchants Supply Co. v. Iowa Employment Sec. Commission

• Decision Date: 12 December 1944
• Docket Number: 46535.
• Citation: 16 N.W.2d 572,235 Iowa 372
• Parties: MERCHANTS SUPPLY CO. v. IOWA EMPLOYMENT SECURITY COMMISSION.
• Court: Iowa Supreme Court

16 N.W.2d 572

235 Iowa 372

MERCHANTS SUPPLY CO. v. IOWA EMPLOYMENT SECURITY COMMISSION.

No. 46535.

Supreme Court of Iowa

December 12, 1944

Smith O'Connor & Thomas, of Dubuque, for appellant.

F. D. Riley, of Des Moines, and Robert L. Larson Asst. Atty. Gen., for appellee.

HALE Justice.

Appellee agrees that the statement of the case and the statement of the facts as set out by appellant are correct and we therefore set them out herein as a statement of the controversy before us.

Merchants Supply Company appealed to the district court from a decision of the Iowa Employment Security Commission fixing its 1943 contribution rate under the Iowa Employment Security Act Chapter 77.2, Code of Iowa 1939, as amended, at 2.7% claiming said rate should be .9%. In computing the said contribution rate under the formula presented in section 1551.13, subd. C, Code of Iowa 1939, the Commission included the 'gross' payroll of Merchants Supply Company, whereas it is the contention of said company that the same should be limited to the 'taxable' payroll. The district court, sitting as a court of equity, affirmed the decision of the Commission. The questions presented by this appeal are whether in computing the employers' contribution (or rate of tax) under the formula prescribed in section 1551.13, subd. C, Code of Iowa 1939, the term 'average annual pay roll' means the total or gross payroll of the employer, or that part of the payroll which is taxable under the Iowa Employment Security Act. And if it means gross payroll, is it constitutional? The payroll facts of Merchants Supply Company are undisputed and are correctly set forth in the following table:

MERCHANTS SUPPLY COMPANY WHOLESALERS

Sixth and Iowa Streets Dubuque, Iowa

ESTABLISHMENT OF CONTRIBUTION RATE

for Calendar Year 1943.

A. B. C.

Average Annual Over

Payroll 3 years Gross Taxable $3,000

1940 14,885.65 13,675.92 1,210.03

1941 23,025.15 17,815.08 5,210.07

1942 51,506.57 25,348.53 26,158.04

89,417.37 56,839.53 32,578.14

Average Annual Payroll 29,806.79 18,946.51

Total Contributions Paid as of Dec. 31, 1942 2,315.47 2,315.47

Total Benefits paid charged to your account 351.24 351.24

Dec. 31, 1942

Excess of Contributions over Benefit Payments 1,964.23 1,964.23

Ratio of excess of Contributions over Benefit 6.5% 10.3%

Payments to Average Annual Payroll

Contribution Rete for year 1943 2.7% .9%

Column A. in above table shows the rate and method of computation as fixed by the Commission and affirmed by the trial court. Column B. shows the rate and method of computation which appellant contends is correct under the Iowa law. The foregoing computation is based on section 1551.13, subd. C 3 and 4, Code of Iowa 1939. The size of the fund and the amount of benefits paid therefrom are of such amounts that section 1551.13, subd. C 5, Code of Iowa 1939 has no application to the determination of a proper rate for Merchants Supply Company for 1943.

Merchants Supply Company's tax rate is to be computed on a three year average payroll and not a five year average payroll. Sec. 1551.25, subd. A 2, code of Iowa 1939.

The propositions relied upon by appellant for reversal are:

1. The controlling rule of construction is that a tax measure must be construed against the taxing body.

2. Chapter 100, Acts of the 49th General Assembly of Iowa, amended sections 1551.13, subd. C, 1551.25, subd. A and 1551.25, subd. M so that 'wages' and 'payroll' as used therein exclude amounts paid to any one employee in excess of $3,000 in any one year.

3. Construction of act which determines experience rate on basis of gross payroll makes section 1551.13, subds. C 3 and 4 unconstitutional as a violation of the due process, equal protection of law and uniformity requirements of the Iowa and United States constitutions.

The issue in this case is whether in computing the contribution rate of the employer, the term 'average annual pay roll' means the gross, or total, payroll of the employer or only that part of the payroll which is taxable. If the contribution is based on the average gross annual payroll then the rate of 2.7% established by the Commission is correct. If the average annual payroll means only that part of the payroll which is taxable then the rate of contribution for 1943 should be established at .9%. The solution of this question requires a construction of the unemployment statute.

What is known as the Iowa Employment Security Law was enacted by the 46th General Assembly, Ex. Sess. c. 4, and has since been amended several times. The object of and guide to the interpretation of the statute are found in section 1551.08, Code of 1939. In general the intention was to provide protection against unemployment by encouraging employers to provide more stable employment and by accumulating funds during periods of employment to provide benefits for periods of unemployment, and the intention is declared to be for the public good and general welfare of the citizens of the state. In its present form the statute consists of twenty subdivisions. Sections 1551.09 to 1551.12, inclusive, provide for the administration and manner of operation of the law, as do most of the other sections.

In considering the present case, however, we are most concerned with section 1551.13 relating to the payment of contributions by the employer to the unemployment fund. Subsection A of that section originally provided: 'On and after July 1, 1936, contributions shall accure and become payable by each employer with respect to wages payable for employment as defined in section 1551.25 subsection 'G' occurring during such calendar year except that for the six months period beginning July 1, 1936, such contributions shall accrue and become payable solely from employers with respect to wages payable for employment occurring on and after July 1, 1936. Such contributions shall become due and be paid to the commission for the fund at such time and in such manner as the commission may prescribe. * * *'

This provision of the Code was amended by Chapter 99, Acts of the 49th General Assembly, which provided that the law as it appears in subsection A of section 1551.13 should be amended to make the contribution of each employer only on that part of the wages up to and including the sum of $3,000. This amending statute was repealed, and Chapter 100, Acts of the 49th General Assembly, was enacted, going into effect April 17, 1941. This latter amending statute repealed paragraph 1, subsection A of section 1551.13, and Chapter 99 above referred to, and enacted in their stated the statute as it now is, and since that time has remained, with a few slight changes made by Chapter 101, Acts of the 49th General Assembly.

The section now provides, in conformity with the Federal Unemployment Tax Act, 26 U.S.C.A.Int.Rev.Code, § 1600 et seq., that the wages on which contributions are payable are limited to $3,000 to any one employee in any one calendar year. The new law, Chapter 100, Acts of the 49th General Assembly, contains the provision which is the subject of controversy here as follows: 'For the purposes of this section the term 'wages' shall not include that part of the remuneration which, after remuneration equal to three thousand dollars ($3,000) has become payable to an individual by an employer with respect to employment during the calendar year * * *.' (Italics ours.)

Therefore, as stated by appellant, the question raised by this appeal is the construction and effect to be given to the language used in said Chapter 100, which limits wages to the first $3,000 paid to any one employee in any one year. Appellant contends that Chapter 100 limits average payroll to average annual taxable payroll as distinguished from average annual gross payroll. The amount of contribution to the unemployment fund by each employer is found in subsection C of said section 1551.13 and the weekly benefit amount for total unemployment is prescribed in section 1551.09. Subsection C referred to provides that there should be a separate account for each employer and his contribution credited therein but benefits paid are charged against the account of the most recent employer. The rate is further prescribed by subsection C in paragraphs 3, 4 and 5 thereof. The rate of contribution of each employer depends upon his benefit experience, this depending upon the ratio of the excess of contributions of benefit payments to average annual payroll, as shown by the schedule heretofore set out. That is, the rate is determined on the basis of his record up to the beginning of each calendar year. Paragraph 4, subsection C, section 1551.13 prescribes the formula for determining the benefit experience or merit rating of an employer, under which the rate depends upon the ratio the excess of contributions of the employer over benefits charged to his account bears to his average annual payroll.

Section 1551.25, subsection A, paragraphs 1 and 2, defines payroll and average annual payroll as follows:

'1. 'Annual pay roll' means the total amount of wages payable by an employer * * * during a calendar year.

'2. 'Average annual pay roll' means the average of the annual pay rolls of any employer for the last three or five years, whichever average is higher.'

Section 1551.25, subsection M, as amended, defines wages as 'all remuneration for personal services, including commissions and bonuses and the cash value of all remuneration in any medium other than cash.'

The point of contention between appellant and appellee is that since the amendatory act, Chapter 100, Acts of the 49th General Assembly, states that wages shall not include any wages in excess of $3,000, then wages, as defined in section 1551.25 subd. M, must mean the taxable...